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Jim Cramer explains why high expectations can sink even strong stocks
CNBC’s Jim Cramer said Tuesday that investors often miss a key market truth: a company can deliver excellent results and still see its stock tumble not because it did anything wrong, but because expectations were simply too high.
Several high-flying names were hit hard in the latest session, a sign, Cramer said, that markets may have gotten ahead of themselves after a strong run. He dismissed the standard Wall Street label of “profit-taking,” calling it inadequate to explain the disconnect between strong fundamentals and weak stock reactions.
Cramer pointed to GE Vernova as an example. The energy company which plays a critical role in powering AI data centers reported strong order growth and painted a bullish outlook. CEO Scott Strazik even hinted at a possible relationship with OpenAI, a name that’s sent other tech stocks soaring. But GE Vernova shares, which were up nearly 80% year-to-date, plunged 50 points.
“It wasn’t enough that they [GE Vernova] had terrific order growth. The stock had already anticipated that and more,” Cramer said.
Vertiv, another data infrastructure provider, faced a similar fate. Despite delivering one of the strongest quarters of the year, with organic orders up 60%, the stock reversed sharply after initially jumping. Cramer said that investors were already expecting a monster quarter and even a “great” result wasn’t enough.
Vertiv Chairman Dave Cote opened the company’s call by joking, “I wonder what would have happened if we hadn’t blown the doors off of every single metric.” Cramer said it was a fair point: when the bar is set sky-high, reality struggles to keep up.
In contrast, Intuitive Surgical soared 14% after surprising Wall Street with stronger-than-expected procedure growth. A key detail was that the company saw increased after-hours usage of its Da Vinci robotic systems which indicates improving efficiency and demand that wasn’t baked in. Because the re-acceleration was not expected, Cramer said, that’s how the stock rallied 14%.
Cramer also warned about the ongoing pain in speculative stocks. Companies that never made money are issuing new shares to stay afloat, and insiders are cashing out. However, he remains bullish on real economy names, pointing to Capital One as an example. The credit card company rallied on a surprisingly positive quarter, showing a decline in credit issues despite broader concerns.
“I don’t think the speculative stocks are gonna return to their previous heights of two weeks ago,” Cramer said. “That’s why I keep urging you to trim the stocks of companies you own that are losing fortunes.”
